Inventory management remains one of the most important ways in which you can transform your e-commerce business into a profitable and successful enterprise. This is one of the critical competitive advantages that you can have in 2021 when virtually every business is feeling “the squeeze” following the shut-downs and social distancing measures that followed the COVID-19 pandemic. The mistake that many entrepreneurs make is to think that inventory management is only for larger corporations with unlimited research and development budgets.
The truth is that you only have to tweak your inventory management system here and there to make it fit your purpose. One of the things that you need to be aware of is how orders come in so that you can predict them in the future. That means that you order what you need to meet your customer demands, but nothing more. Businesses with a lot of experience and management information tend to do their inventory management better than those that are just starting.
It is imperative to have an accurate forecast that tells you about the growth curve for your business. You also need to know about your sector and how market trends are moving so you can respond to them. Think about your bottom line and where you want to be in terms of improving your profitability and efficiency. Factors such as consumer confidence can also have an impact on how you are going to manage your inventory.
Typically, businesses will come up with a promotional calendar that is meant to boost sales. However, you need to expect the unexpected. That means understanding that no matter how good an inventory management technique is; it doesn’t always resolve all the problems that you face. Indeed, the year might turn out very differently from when it began. This article identifies five ways in which you can add quality and efficiency to your inventory management.
Setting minimum stock levels
You have to carefully set minimum stock levels that are consistent with your business needs. Consumers are very unforgiving about companies that do not have the products that they want. This is more so if that product is advertised. Failing to meet customer expectations might not just lose you a single sale, but lose you the customer entirely.
Some might be tempted to err on the side of caution by over-ordering everything so that they never have to let a customer down. The problem with that strategy is that you are essentially keeping your cash flow in stock that isn’t moving. Moreover, there may not be enough space to store items that aren’t being bought.
In the absence of a reliable way to achieve a perfect balance between supply and demand, the savviest businesses set minimum stock levels to help them stay on top of demand. When the minimum stock level is being approached, you should have an internal notification that alerts you to order more before running out. Minimum stock levels are a function of sales data and the time frames that are typically required to acquire additional stock.
Understanding Your Supply Chain
The second thing you need to think about is your supply chain. You need to understand how the supply chain works, its strengths, and its weaknesses. This will allow you to leverage this information when planning supplies and stock updates. Some supply chains are so efficient and so reliable that you can easily react to a spike in demand. Others are more tedious and you need more stock just in case they let you down.
As you build your knowledge about the supply chain make some contingency plans for when things go wrong. For example, a previously unpopular product may suddenly receive a sales boost due to a celebrity endorsement. You must have the ability to bounce back and respond to changes in demand through your inventory management framework.
This is where business intelligence comes into play. You have to keep abreast of all the things that could potentially impact your supply chain. Always keep abreast of your inventory data and take an analytical stance rather than just looking at the headlines.
Your SKUs
The third thing you need to consider is the level of flexibility within your Stock-Keeping Units (SKUs). No matter how diligent you are, there are bound to be certain unexpected spikes in demand that change how you manage your inventory. For example, an offer may attract more attention than anticipated which means that your stock will deplete faster than you can replenish them.
One of the techniques that are used to deal with this problem is to update SKUs and use them in a much more flexible manner. For example, individual items could be converted into cases or cases converted back into individual items to allow for a much more flexible way of meeting customer demands. Indeed, many companies use this approach at crunch time during the peak season such as the holidays.
Stocking Minimum Levels of Inventory
Try not to over-stock inventory so that you have an ongoing balance that is sustainable and manageable. Ensure that obsolete and slow-moving inventory is taken out to create space for more popular items. Too much inventory costs cash flow and space, so it must be avoided if possible. Remember that inventory tends to lose value over time, hence compounding your losses in tied-up capital.
Instead of spending money on “Zombie inventory” that is not moving, you could enhance your advertising campaigns and provide offers to encourage sales. Study the data that is coming out of your sales websites and other management information systems so that you can determine which inventory is not moving.
The reality is that most entrepreneurs rarely visit their order fulfillment warehouses. This means that they lose track of inventory. You need a monitoring agency to ensure that you are kept up to date with how your stock is moving.
Dealing with Shrinkage
The fifth strategy that you should employ involves being proactive about dealing with shrinkage. It is problematic if you are trying to deal with inventory that has gone away. Shrinkage is a technical term to refer to that part of the inventory that is no longer usable due to loss, breakage, damage, and theft.
The vast majority of fulfillment centers recognize the reality of shrinkage and therefore make an allowance for it. However, there is always the risk of “ghost inventory” that appears in your systems but is just not available to use. Where possible, apply a zero-shrinkage policy.
This can be achieved by logging items that have been checked and regularly verifying the data that has been presented about that inventory. If you are working with a third party, ensure that there are arrangements for reimbursements in case of shrinkage. At other times you have to employ good old fashioned tactics such as investigations and disciplinary action.
Optimizing Your Inventory
As a bonus, we have added a method you can use which is all about optimizing the inventory that you have. This can be achieved through the careful selection and deployment of inventory management software. In this way, you can keep track of stock without interfering in other operational activities.
Generally speaking, you should choose software that has a good reputation in terms of allowing you a trial period; being relatively easy to use; fully integrated; compatible with your systems; providing real-time data; and generating purchase orders.
Wrapping Up
This year (2020) is one that is filled with potential pitfalls for e-commerce businesses. One way that businesses can acquire a competitive edge is through the strategic use of inventory management techniques. We have explored five of these techniques in this article including understanding supply chains, managing SKUs, using minimum stocking levels, optimizing inventory, and dealing with shrinkage.
3 Comments on “5 Tips for Improving Your Inventory Management in 2021”
Amazing article, Nelson. I agree with your statement that “Think about your bottom line and where you want to be in terms of improving your profitability and efficiency. Factors such as consumer confidence can also have an impact on how you are going to manage your inventory.” Your article is much helpful for beginners.
It really interests me to read such articles, thanks for sharing.
Thank you for sharing this amazing article with us! In it, you provide some great tips on how to improve your inventory management. By following the advice in this article, you can help ensure that your business stays stocked with the items that customers want and need. Thank you for providing such valuable information, and we hope that our readers find it as useful as we did.